Shanghai Shipyard Co. Ltd (Respondent) v Reignwood International Investment (Group) Company Ltd (Appellant)
Case ID: 2021/0172
This case concerns the proper characterisation of a shipbuilding performance guarantee (the “Guarantee”). There are two issues of law:
(i) Whether on the true construction of the Guarantee it is a demand guarantee such that, subject to issue (ii) below, the guarantor’s liability arises upon and by reason of a demand, regardless of the buyer’s liability under the terms of the shipbuilding contract; or it is a “see to it” guarantee such that the guarantor’s liability arises only if the buyer was liable to pay the final instalment under the terms of the shipbuilding contract.
(ii) Whether the guarantor can refuse payment under clause 4 of the Guarantee pending the outcome of an arbitration between the shipbuilder and the ship buyer concerning the buyer’s liability to pay, and the builder’s entitlement to claim, the final instalment under the terms of the shipbuilding contract.
In a shipbuilding contract the Respondent (the “Builder”) agreed to build an offshore drillship, “Tiger 1” (the “Vessel”) for the Appellant (“Reignwood”) for US$200 million. In due course, Reignwood was to be replaced as the buyer by a different entity, a single purpose vehicle called Opus Tiger 1 Pte. Ltd (“OT1”). The price was to be paid in three instalments, with the final instalment of US$170 million due upon delivery (the “Final Instalment”). Reignwood entered into an “Irrevocable Payment Guarantee” for the Final Instalment in favour of the Builder (the “Guarantee”).
In May 2017 the Builder made a demand of Reignwood under the Guarantee for payment of the Final Instalment. OT1 argued the Vessel was not in a deliverable condition because of a number of major and critical defects. A London arbitration was commenced by Reignwood in the name of OT1.
Knowles J found for the Appellant and held that the Guarantee was a “see to it” guarantee and that the Appellant was entitled to refuse payment pending the outcome of the arbitration, regardless of when that arbitration was commenced. The Court of Appeal allowed the Respondent’s appeal and ordered Reignwood to pay the sums due under the Guarantee. Reignwood now appeals that decision to the Supreme Court.
Reignwood International Investment (Group) Company Ltd
Shanghai Shipyard Co. Ltd
Lord Hodge, Lord Hamblen, Lord Leggatt, Lord Burrows, Lord Stephens
Hearing start date
8 December 2022
Hearing finish date
8 December 2022